AIG Reports First Quarter 2017 Results

May 03, 2017 04:16 PM Eastern Daylight Time

NEW YORK--(BUSINESS WIRE)--American International Group, Inc. (NYSE: AIG) today announced results
for the quarter ended March 31, 2017.

“Our first quarter results highlight the success of the actions we have
taken to execute on our strategy, strengthen our balance sheet, and
improve earnings quality,” said Peter D. Hancock, AIG President and
Chief Executive Officer. “Operating results across our core Commercial
and Consumer businesses improved and we continued to return excess
capital to shareholders. Since January 1, 2016, we have returned over
$18 billion of capital towards our $25 billion target. We will continue
to execute our strategy and further build on our position as a leading
global insurance company.”

FIRST QUARTER FINANCIAL SUMMARY*

Three Months Ended

March 31,

($ in millions, except per share amounts)

2017

2016

Net income (loss)

$

1,185

$

(183)

Net income (loss) per diluted share (a)

$

1.18

$

(0.16)

After-tax operating income

$

1,367

$

765

After-tax operating income per diluted share (a)

$

1.36

$

0.64

Return on equity

6.3

%

(0.8)

%

AIG Consolidated:

Adjusted return on equity

9.6

%

4.5

%

Normalized return on equity (b)

8.1

%

8.3

%

Core:

Adjusted return on attributed equity - Core

10.2

%

6.8

%

Normalized return on attributed equity - Core (b)

8.7

%

9.0

%

Book value per common share, excluding accumulated other
comprehensive income

$

74.58

$

73.40

*Refer to the Comments on Regulation G and the tables that follow for a
discussion of non-GAAP financial measures and the reconciliations of the
non-GAAP financial measures to GAAP measures.

(a) For periods reporting a loss, basic average common shares
outstanding are used to calculate net income (loss) per diluted share.(b)
The declines in Consolidated Normalized ROE and Core Normalized ROE are
largely due to the increase in second half 2016 U.S. Casualty loss
estimates, which contributed 0.8 pts and 1.0 pts to the declines
respectively.

All comparisons are against the first quarter of 2016, unless otherwise
indicated. Refer to the AIG First Quarter 2017 Financial Supplement
which is posted on AIG's website in the Investor Information section for
further information.

FINANCIAL HIGHLIGHTS

ROE Improvements – ROE of 6.3% and Core Adjusted ROE of 10.2%
improved largely due to active capital management and expense
efficiencies. After normalizing our results, including for strong
alternative investment returns and lower than expected catastrophe
losses, Core Normalized ROE was 8.7%. The decline in Core Normalized ROE
of 30 bps from a year ago is largely due to the increase in second half
2016 U.S. Casualty loss estimates. Had the loss estimates been reflected
in the first quarter of 2016, the Core Normalized ROE would have been
100 bps lower. The year ago Core Normalized ROE also included a 50 bps
contribution from certain favorable tax audit resolutions.

Expense Reduction Ahead of Target – General operating and other
expenses (GOE) declined $560 million or 18.6% to $2.4 billion. GOE,
operating basis, declined 10% on a constant dollar basis excluding the
GOE reductions related to the sales of United Guaranty Corporation and
AIG Advisor Group, driven by organizational simplification and better
use of technology.

Execution of Capital and Liquidity Plan – In the first quarter,
AIG repurchased 56.0 million common shares for $3.6 billion. Through May
3, 2017, AIG has repurchased an additional 18.1 million common shares
for $1.1 billion. On May 3, 2017, AIG’s Board of Directors authorized an
additional increase to its previous repurchase authorization of AIG
Common Stock of $2.5 billion, resulting in an aggregate remaining
authorization of approximately $3.8 billion on such date.

In the first quarter, AIG Parent received $2.8 billion of distributions
from insurance subsidiaries including $2.6 billion remitted by the Life
Insurance Companies in the form of tax sharing payments which were
primarily the result of a life reinsurance agreement entered into at the
end of 2016.

Continued Progress on Sculpting the Portfolio – Since the first
quarter AIG closed on the sale of AIG Fuji Life Insurance Company, Ltd.
to FWD Group. In addition, AIG closed on four of the twelve
international operations it had agreed to sell to Fairfax Financial
Holdings Limited.

CORE

Commercial Insurance Highlights – In the first quarter,
Commercial Insurance results benefited from strong alternative
investment returns and expense reduction. Reinsurance and continued
remediation in the U.S. Casualty and Property businesses accounted for a
large majority of the decline in net premiums written which is
consistent with AIG’s focus on risk selection and targeted growth.

Pre-tax operating income included $35 million of favorable prior year
reserve development, net of reinsurance and premium adjustments, in
Property and Special Risks and $81 million of adverse prior year
reserve development, net of reinsurance and premium adjustments in
Liability and Financial Lines. The Liability and Financial Lines
adverse development primarily reflected a $102 million addition
related to the Ogden U.K. discount rate adjustment which was partially
offset by $41 million of benefit attributable to the partial quarterly
amortization of the deferred gain from the adverse development
reinsurance agreement with National Indemnity Company.

The loss ratio of 71.9 increased by 4.1 points in the first quarter
2017. The accident year loss ratio, as adjusted, of 65.5 increased by
2.0 points. The first quarter of 2016 did not include the increase in
second half 2016 loss estimates, which were primarily in the U.S.
Casualty business. Taking into account the increased loss estimates,
the accident year loss ratio, as adjusted, would have improved by 2.2
points.

The expense ratio was 30.3 in the first quarter, slightly higher than
that in the prior year quarter as improvements in GOE, ceding
commissions received from reinsurers and a decline in commission
expenses associated with the sale of Ascot Underwriting Holdings Ltd.
were offset by the decline in premiums associated with our strategic
portfolio actions.

Commercial Insurance net premiums written decreased by 17% or 14% on a
constant dollar basis excluding divestitures. The increased use of
reinsurance in Property represented 4 points of the decline, while the
remaining 10 points was related to continued execution on our
strategic portfolio actions throughout the first quarter of 2017, and
the important January 1st renewal date in Europe.

Three Months Ended March 31,

($ in millions)

2017

2016

Change

Total Commercial Insurance

Net premiums written

$

3,629

$

4,375

(17)

%

Pre-tax operating income

$

849

$

662

28

Underwriting ratios:

Loss ratio

71.9

67.8

4.1

pts

Expense ratio

30.3

29.9

0.4

Combined ratio

102.2

97.7

4.5

Liability and Financial Lines

Net premiums written

$

2,216

$

2,509

(12)

%

Pre-tax operating income

$

574

$

569

1

Underwriting ratios:

Loss ratio

76.0

69.0

7.0

pts

Expense ratio

29.4

27.8

1.6

Combined ratio

105.4

96.8

8.6

Property and Special Risks

Net premiums written

$

1,413

$

1,866

(24)

%

Pre-tax operating income

$

275

$

93

196

Underwriting ratios:

Loss ratio

66.3

66.0

0.3

pts

Expense ratio

31.4

33.1

(1.7)

Combined ratio

97.7

99.1

(1.4)

Consumer Insurance Highlights – In the first quarter,
Consumer Insurance earnings were supported by increased alternative
investment income and expense control, combined with stable earnings
from the inforce Individual and Group Retirement and Life Insurance
businesses.

Pre-tax operating income increased 49%, driven by higher returns on
alternative investments and expense reductions across all Consumer
Insurance businesses.

In Individual Retirement, higher returns on alternative investments,
lower acquisition cost amortization and benefit expense, and higher
policy fee income related to better equity market performance were
partially offset by the decrease in income from the sale of AIG
Advisor Group in May 2016.

Legacy Portfolio Highlights - During the first quarter,
the Legacy Investment portfolio executed on several transactions with
external parties for total consideration of approximately $468 million.
The majority of the consideration received was used to pay down
intercompany loans and notes with affiliated insurance companies.

Higher Legacy Investment pre-tax operating income was driven by higher
appreciation on assets for which the fair value option was elected.

CONFERENCE CALL

AIG will host a conference call tomorrow, Thursday, May 4, 2017, at 9:00
a.m. ET to review these results. The call is open to the public and can
be accessed via a live listen-only webcast in the Investor Relations
section of www.aig.com.
A replay will be available after the call at the same location.

Additional supplementary financial data is available in the Investor
Relations section at www.aig.com.

The conference call (including the conference call presentation
material), the earnings release and the financial supplement may
include, and officers and representatives of AIG may from time to time
make, projections, goals, assumptions and statements that may constitute
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. These projections, goals,
assumptions and statements are not historical facts but instead
represent only AIG’s belief regarding future events, many of which, by
their nature, are inherently uncertain and outside AIG’s control. These
projections, goals, assumptions and statements include statements
preceded by, followed by or including words such as “will,” “believe,”
“anticipate,” “expect,” “intend,” “plan,” “focused on achieving,”
“view,” “target,” “goal” or “estimate.” These projections, goals,
assumptions and statements may address, among other things, AIG’s:
exposures to subprime mortgages, monoline insurers, the residential and
commercial real estate markets, state and municipal bond issuers,
sovereign bond issuers, the energy sector and currency exchange rates;
exposure to European governments and European financial institutions;
strategy for risk management; generation of deployable capital; actual
and anticipated sales of businesses or asset divestitures or
monetizations; restructuring of business operations, including
anticipated restructuring charges and annual cost savings; strategies to
increase return on equity and earnings per share; strategies to grow net
investment income, efficiently manage capital, grow book value per
common share, and reduce expenses; anticipated organizational and
business changes; strategies for customer retention, growth, product
development, market position, financial results and reserves; segments’
revenues and combined ratios; and Chief Executive Officer succession and
management retention plans. It is possible that AIG’s actual results and
financial condition will differ, possibly materially, from the results
and financial condition indicated in these projections, goals,
assumptions and statements. Factors that could cause AIG’s actual
results to differ, possibly materially, from those in the specific
projections, goals, assumptions and statements include: changes in
market conditions; negative impacts on customers, business partners and
other stakeholders; the occurrence of catastrophic events, both natural
and man-made; significant legal proceedings; the timing and applicable
requirements of any new regulatory framework to which AIG is subject as
a nonbank systemically important financial institution and as a global
systemically important insurer; concentrations in AIG’s investment
portfolios; actions by credit rating agencies; judgments concerning
casualty insurance underwriting and insurance liabilities; AIG’s ability
to successfully manage Legacy portfolios; AIG’s ability to successfully
reduce costs and expenses and make business and organizational changes
without negatively impacting client relationships or AIG’s competitive
position; AIG’s ability to successfully dispose of, or monetize,
businesses or assets; judgments concerning the recognition of deferred
tax assets; judgments concerning estimated restructuring charges and
estimated cost savings; and such other factors discussed in Part I, Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (MD&A) in AIG’s Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 2017 (which will be filed with the
SEC) Part II, Item 7. MD&A and Part I, Item 1A. Risk Factors in AIG’s
Annual Report on Form 10-K for the year ended December 31, 2016. AIG is
not under any obligation (and expressly disclaims any obligation) to
update or alter any projections, goals, assumptions, or other
statements, whether written or oral, that may be made from time to time,
whether as a result of new information, future events or otherwise.

COMMENT ON REGULATION G

Throughout this press release, including the financial highlights, AIG
presents its financial condition and results of operations in the way it
believes will be most meaningful and representative of its business
results. Some of the measurements AIG uses are “non-GAAP financial
measures” under Securities and Exchange Commission rules and
regulations. GAAP is the acronym for “generally accepted accounting
principles” in the United States. The non-GAAP financial measures AIG
presents may not be comparable to similarly-named measures reported by
other companies. The reconciliations of such measures to the most
comparable GAAP measures in accordance with Regulation G are included
within the relevant tables or in the First Quarter 2017 Financial
Supplement available in the Investor Information section of AIG’s
website, www.aig.com.

Book Value per Common Share, Excluding Accumulated Other
Comprehensive Income (AOCI) and Book Value per Common Share, Excluding
AOCI and Deferred Tax Assets (DTA) (Adjusted Book Value per Common
Share) and Adjusted Book Value per Common Share, Including Dividend
Growth are used to show the amount of AIG’s net worth on a per-share
basis. AIG believes these measures are useful to investors because they
eliminate items that can fluctuate significantly from period to period,
including changes in fair value of AIG’s available for sale securities
portfolio, foreign currency translation adjustments and U.S. tax
attribute deferred tax assets. These measures also eliminate the
asymmetrical impact resulting from changes in fair value of AIG’s
available for sale securities portfolio wherein there is largely no
offsetting impact for certain related insurance liabilities. AIG
excludes deferred tax assets representing U.S. tax attributes related to
net operating loss carryforwards and foreign tax credits as they have
not yet been utilized. Amounts for interim periods are estimates based
on projections of full-year attribute utilization. As net operating loss
carryforwards and foreign tax credits are utilized, the portion of the
DTA utilized is included in these book value per common share metrics.
Book value per common share, excluding AOCI, is derived by dividing
Total AIG Shareholders’ equity, excluding AOCI, by total common shares
outstanding. Adjusted Book Value per Common Share is derived by dividing
Total AIG shareholders’ equity, excluding AOCI and DTA (Adjusted
Shareholders’ Equity), by total common shares outstanding. Adjusted
Book Value per Common Share, including dividend growth is derived by
dividing Adjusted Shareholders’ Equity including growth in quarterly
dividends above $0.125 per share to shareholders, by total common shares
outstanding.

AIG Return on Equity – After-tax Operating Income Excluding AOCI and
DTA (Adjusted Return on Equity) is used to show the rate of return
on shareholders’ equity. AIG believes this measure is useful to
investors because it eliminates items that can fluctuate significantly
from period to period, including changes in fair value of AIG’s
available for sale securities portfolio, foreign currency translation
adjustments and U.S. tax attribute deferred tax assets. This measure
also eliminates the asymmetrical impact resulting from changes in fair
value of AIG’s available for sale securities portfolio wherein there is
largely no offsetting impact for certain related insurance liabilities.
AIG excludes deferred tax assets representing U.S. tax attributes
related to net operating loss carryforwards and foreign tax credits as
they have not yet been utilized. Amounts for interim periods are
estimates based on projections of full-year attribute utilization. As
net operating loss carryforwards and foreign tax credits are utilized,
the portion of the DTA utilized is included in Adjusted Return on
Equity. Adjusted Return on Equity is derived by dividing actual or
annualized after-tax operating income attributable to AIG by average
Adjusted Shareholders’ Equity.

AIG Normalized Return on Equity further adjusts Adjusted Return
on Equity for the effects of certain volatile or market related items.
AIG believes this measure is useful to investors because it presents the
trends in AIG’s consolidated return on equity without the impact of
certain items that can experience volatility in AIG’s short-term
results. Normalized Return on Equity is derived by excluding the
following tax adjusted effects from Adjusted Return on Equity: the
difference between actual and expected (i) catastrophe losses, (ii)
alternative investment returns, and (iii) Direct Investment book (DIB)
and Global Capital Markets (GCM) returns; fair value changes on PICC
investments; update of actuarial assumptions; Life insurance incurred
but not reported (IBNR) death claim charge; and prior year loss reserve
development.

Core Attributed Equity is an attribution of total AIG Adjusted
Shareholders’ Equity to each of AIG’s modules within Core based on AIG’s
internal capital model, which incorporates the respective risk profiles.
Attributed equity represents AIG’s best estimates based on current facts
and circumstances and will change over time.

Core Return on Equity– After-tax Operating Income (Adjusted
Return on Attributed Equity) is used to show the rate of return on
attributed equity. Return on Attributed Equity is derived by dividing
actual or annualized After-tax Operating Income by Average Attributed
Equity.

Core Normalized Return on Attributed Equity (Normalized Return on
Attributed Equity) further adjusts Adjusted Return on Attributed
Equity for the effects of certain volatile or market-related items. AIG
believes this measure is useful to investors because it presents the
trends in AIG’s Return on Attributed Equity without the impact of
certain items that can experience volatility in our short-term results.
Normalized Return on Attributed Equity is derived by excluding the
following tax adjusted effects from Return on Attributed Equity: the
difference between actual and expected (i) catastrophe losses, (ii)
alternative investment returns, and (iii) DIB and GCM returns; fair
value changes on PICC investments; update of actuarial assumptions; Life
insurance IBNR death claim charge; and prior year loss reserve
development.

After-tax Operating Income Attributable to Core is derived by
subtracting attributed interest expense and income tax expense from
pre-tax operating income. Attributed debt and the related interest
expense is calculated based on AIG’s internal capital model. Tax expense
or benefit is calculated based on an internal attribution methodology
that considers among other things the taxing jurisdiction in which the
operating segments conduct business, as well as the deductibility of
expenses in those jurisdictions.

Normalized After-tax Operating Income Attributable to Core
further adjusts After-tax Operating Income attributable to Core for the
effects of certain volatile or market related items. AIG believes this
measure is useful to investors because it presents the trends in after
tax operating income without the impact of certain items that can
experience volatility in AIG’s short-term results. Normalized After-tax
Operating Income attributable to Core is derived by excluding the
following tax adjusted effects from After-tax Operating Income: the
difference between actual and expected (i) catastrophe losses, (ii)
alternative investment returns, and (iii) DIB and GCM returns; fair
value changes on PICC investments; update of actuarial assumptions; Life
insurance IBNR death claim charge; and prior year loss reserve
development (PYD), net of reinsurance premium adjustments.

Operating Revenues exclude Net realized capital gains (losses),
income from non-operating litigation settlements (included in Other
income for GAAP purposes) and changes in fair value of securities used
to hedge guaranteed living benefits (included in Net investment income
for GAAP purposes). Operating revenues is a GAAP measure for our
operating segments.

General Operating Expenses, Operating Basis (Operating GOE), is
derived by making the following adjustments to general operating and
other expenses: include (i) certain loss adjustment expenses, reported
as policyholder benefits and losses incurred and (ii) certain investment
and other expenses reported as net investment income, and exclude (i)
advisory fee expenses, (ii) non-deferrable insurance commissions, (iii)
direct marketing and acquisition expenses, net of deferrals, (iv)
non-operating litigation reserves and (v) other expense related to an
asbestos retroactive reinsurance agreement. AIG uses General operating
expenses, operating basis, because AIG believes it provides a more
meaningful indication of AIG’s ordinary course of business operating
costs, regardless of within which financial statement line item these
expenses are reported externally within AIG’s segment results. The
majority of these expenses are employee-related costs. For example,
Other acquisition expenses and losses and loss adjustment expenses
primarily represent employee-related costs in the underwriting and
claims functions, respectively. Excluded from this measure are
non-operating expenses (such as restructuring costs and litigation
reserves), direct marketing expenses, insurance company assessments and
non-deferrable commissions. AIG also excludes the impact of foreign
exchange and the expenses of AIG Advisor Group and UGC, which have been
divested, when measuring period-over-period fluctuations in General
Operating Expenses, Operating basis.

AIG uses the following operating performance measures because AIG
believes they enhance the understanding of the underlying profitability
of continuing operations and trends of AIG’s business segments. AIG
believes they also allow for more meaningful comparisons with AIG’s
insurance competitors. When AIG uses these measures, reconciliations to
the most comparable GAAP measure are provided on a consolidated basis.

Pre-tax Operating Income (PTOI) is derived by excluding the
following items from income from continuing operations before income
tax. This definition is consistent across AIG’s modules (including
geography). These items generally fall into one or more of the following
broad categories: legacy matters having no relevance to AIG’s current
businesses or operating performance; adjustments to enhance transparency
to the underlying economics of transactions; and measures that AIG
believes to be common to the industry. PTOI is a GAAP measure for our
operating segments.

•

changes in fair value of securities used to

•

pension expense related to a one-time

hedge guaranteed living benefits;

lump sum payment to former employees;

•

changes in benefit reserves and deferred

•

income and loss from divested businesses;

policy acquisition costs (DAC), value of

•

non-operating litigation reserves and

business acquired (VOBA), and sales

settlements;

inducement assets (SIA) related to net

•

reserve development related to non-

realized capital gains and losses;

operating run-off insurance business;

•

loss (gain) on extinguishment of debt;

•

restructuring and other costs related to

•

net realized capital gains and losses;

initiatives designed to reduce operating

•

non-qualifying derivative hedging

expenses, improve efficiency and simplify

activities, excluding net realized capital

our organization; and

gains and losses;

•

the portion of favorable or unfavorable

•

income or loss from discontinued

prior year reserve development for which

operations;

have ceded the risk under retroactive

•

net loss reserve discount benefit (charge);

reinsurance agreements and related changes

in amortization of the deferred gain.

After-tax Operating Income Attributable to AIG (ATOI) is derived
by excluding the tax effected PTOI adjustments described above and the
following tax items from net income attributable to AIG:

deferred income tax valuation allowance releases and charges; and

uncertain tax positions and other tax items related to legacy matters
having no relevance to our current businesses or operating performance.

See page 12 for the reconciliation of Net income attributable to AIG to
After-tax Operating Income Attributable to AIG.

Ratios: AIG, along with most property and casualty insurance
companies, uses the loss ratio, the expense ratio and the combined ratio
as measures of underwriting performance. These ratios are relative
measurements that describe, for every $100 of net premiums earned, the
amount of losses and loss adjustment expenses (which for Commercial
Insurance excludes net loss reserve discount), and the amount of other
underwriting expenses that would be incurred. A combined ratio of less
than 100 indicates underwriting income and a combined ratio of over 100
indicates an underwriting loss. AIG’s ratios are calculated using the
relevant segment information calculated under GAAP, and thus may not be
comparable to similar ratios calculated for regulatory reporting
purposes. The underwriting environment varies across countries and
products, as does the degree of litigation activity, all of which affect
such ratios. In addition, investment returns, local taxes, cost of
capital, regulation, product type and competition can have an effect on
pricing and consequently on profitability as reflected in underwriting
income and associated ratios.

Accident year loss and combined ratios, as adjusted: both the
accident year loss and combined ratios, as adjusted, exclude catastrophe
losses and related reinstatement premiums, prior year development, net
of premium adjustments, and the impact of reserve discounting. Natural
catastrophe losses are generally weather or seismic events having a net
impact on AIG in excess of $10 million each. Catastrophes also include
certain man-made events, such as terrorism and civil disorders that meet
the $10 million threshold. AIG believes the as adjusted ratios are
meaningful measures of AIG’s underwriting results on an on-going basis
as they exclude catastrophes and the impact of reserve discounting which
are outside of management’s control. AIG also exclude prior year
development to provide transparency related to current accident year
results.

Premiums and deposits: includes direct and assumed amounts
received and earned on traditional life insurance policies, group
benefit policies and life contingent payout annuities, as well as
deposits received on universal life, investment type annuity contracts
and mutual funds.

Results from discontinued operations are excluded from all of these
measures.

American International Group, Inc. (AIG) is a leading global insurance
organization. Founded in 1919, today AIG member companies provide a wide
range of property casualty insurance, life insurance, retirement
products, and other financial services to customers in more than 80
countries and jurisdictions. These diverse offerings include products
and services that help businesses and individuals protect their assets,
manage risks and provide for retirement security. AIG’s core businesses
include Commercial Insurance and Consumer Insurance, as well as Other
Operations. Commercial Insurance comprises two modules – Liability and
Financial Lines, and Property and Special Risks. Consumer Insurance
comprises four modules – Individual Retirement, Group Retirement, Life
Insurance and Personal Insurance. AIG common stock is listed on the New
York Stock Exchange and the Tokyo Stock Exchange.

AIG is the marketing name for the worldwide property-casualty, life and
retirement, and general insurance operations of American International
Group, Inc. For additional information, please visit our website at www.aig.com.
All products and services are written or provided by subsidiaries or
affiliates of American International Group, Inc. Products or services
may not be available in all countries, and coverage is subject to actual
policy language. Non-insurance products and services may be provided by
independent third parties. Certain property-casualty coverages may be
provided by a surplus lines insurer. Surplus lines insurers do not
generally participate in state guaranty funds, and insureds are
therefore not protected by such funds.

American International Group, Inc.

Selected Financial Data and Non-GAAP Reconciliation

($ in millions, except per share data)

Reconciliations of Pre-tax and After-tax Operating Income (Loss)

Three Months Ended March 31,

2017

2016

Pre-tax

Tax Effect

After-tax

Pre-tax

Tax Effect

After-tax

Pre-tax income (loss)/net income (loss), including noncontrolling
interests

(a) For the quarter ended March 31, 2016, because we reported a net
loss, all common stock equivalents are anti-dilutive and are
therefore excluded from the calculation of diluted shares and
diluted per share amounts. We reported an after-tax operating
income, therefore, we reported earnings per share on diluted basis.
For the three months ended March 31, 2016, the weighted average
outstanding shares - diluted includes 29,585,064 dilutive shares.

(b) Diluted shares in the diluted EPS calculation represent basic
shares for the three-months ended March 31, 2016 due to the net loss
in that period.

(c) Computed as Annualized net income (loss) attributable to AIG
divided by average AIG shareholders' equity. Equity includes AOCI
and DTA.

Direct marketing and acquisition expenses, net of deferrals, and
other

(112

)

(144

)

22.2

Investment expenses reported as net investment income and other

8

15

(46.7

)

Total general operating expenses, operating basis

$

2,249

$

2,592

(13.2

)

%

Reconciliations of General Operating Expenses, Operating basis,
Excluding Foreign Exchange and General Operating Expenses of AIG
Advisor Group and UGC to General Operating and Other Expenses, GAAP
basis

Three Months Ended

March 31,

% Inc.

2017

2016

(Dec.)

General operating and other expenses, GAAP basis

$

2,443

$

3,003

(18.6

)

%

Restructuring and other costs

(181

)

(188

)

3.7

Other expense related to retroactive reinsurance agreement

-

7

NM

Non-operating litigation reserves

(4

)

(3

)

(33.3

)

Total general operating and other expenses included in pre-tax
operating income

Direct marketing and acquisition expenses, net of deferrals, and
other

(112

)

(144

)

22.2

Investment expenses reported as net investment income and other

8

15

(46.7

)

Total general operating expenses, operating basis

2,249

2,592

(13.2

)

Less: FX impact

(12

)

NM

Less: GOE of Advisor Group

45

NM

Less: GOE of UGC

50

NM

Total general operating expenses, Operating basis, Ex. FX & GOE
of AIG Advisor Group and UGC

$

2,249

$

2,509

(10.4

)

%

American International Group, Inc.

Selected Financial Data and Non-GAAP Reconciliation

($ in millions, except per share amounts)

Reconciliations of Normalized and Adjusted Return on Equity

Three Months Ended

Three Months Ended

March 31, 2017

March 31, 2016

Tax

Tax

Pre-tax

Effect

After-tax

ROE

Pre-tax

Effect

After-tax

ROE

Return on Equity

$

1,185

6.3

%

$

(183

)

(0.8

)

%

Adjusted Return on equity (a)

$

2,041

$

653

$

1,367

9.6

%

$

945

$

182

$

765

4.5

%

Adjustments to arrive at Normalized Return on Equity:

Catastrophe losses above (below) expectations

(111

)

(39

)

(72

)

(0.5

)

(137

)

(48

)

(89

)

(0.5

)

(Better) worse than expected alternative returns

(183

)

(64

)

(119

)

(0.8

)

714

250

464

2.7

(Better) worse than expected DIB & GCM returns

(45

)

(16

)

(29

)

(0.2

)

395

138

257

1.5

Fair value changes on PICC investments

(22

)

(8

)

(14

)

(0.1

)

103

36

67

0.4

Life Insurance - IBNR death claims

-

-

-

-

(25

)

(9

)

(16

)

(0.1

)

Unfavorable (favorable) prior year loss reserve development

32

11

21

0.1

(60

)

(21

)

(39

)

(0.2

)

Normalized Return on Equity

$

1,712

$

537

$

1,154

8.1

%

$

1,935

$

528

$

1,409

8.3

%

Average AIG Shareholders' equity

$

75,185

$

89,088

Less: Average AOCI

3,506

4,031

Less: Average DTA

14,678

16,788

Average adjusted shareholders' equity

$

57,001

$

68,269

(a) After-tax operating income also excludes Net income (loss)
attributable to non-controlling interest of $21 million and $(2)
million for the three months ended March 31, 2017 and 2016,
respectively.

Reconciliations of Core Normalized and Adjusted Return on Equity

Three Months Ended

March 31,

2017

2016

Pre-tax operating income

$

1,699

$

1,147

Interest expense (benefit) on attributed financial debt

(43

)

(23

)

Operating income before taxes

1,742

1,170

Income tax expense (benefit)

556

279

After-tax operating income

1,186

891

Adjustments to arrive at Normalized Return on Equity:

Catastrophe losses above (below) expectations

(70

)

(87

)

(Better) worse than expected alternative returns

(123

)

392

(Better) worse than expected DIB & GCM returns

(1

)

2

Fair value changes on PICC investments

(14

)

18

Unfavorable (favorable) prior year loss reserve development

31

(41

)

Normalized after-tax operating income

$

1,009

$

1,175

Ending attributed equity

$

45,226

$

51,141

Average attributed equity

$

46,438

$

52,330

Adjusted return on attributed equity

10.2

%

6.8

%

Normalized return on attributed equity

8.7

%

9.0

%

American International Group, Inc.

Selected Financial Data and Non-GAAP Reconciliation (continued)

Reconciliations of Accident Year Loss Ratio, as Adjusted and
Combined Ratio, as Adjusted